Equity Release: Enhance Your Retirement with Equity

What Is Equity Release, and How Does It Work?

Equity is the difference between your home's market value and any debt secured against it, such as a mortgage. If you've built up value in your home over the years, you may be able to use some of that equity to support your lifestyle without selling your property. 

Equity release gives you access to funds by unlocking a portion of your home's value while allowing you to keep living in it. Here's an overview of how it works:

• Access Method: You tap into the value of your property through a financial product – commonly a loan or a partial sale of your property's future value.
• Living Arrangements: You continue to reside in your home, often with no need to make immediate repayments depending on the product.

What Are the Potential Benefits of Accessing Home Equity?

Below are some of the benefits you may be able to enjoy by tapping into your home equity:

Increasing Income Flexibility

Access extra funds to help cover everyday expenses and support a more comfortable retirement.

Covering Medical or Care Costs

Use the funds for health-related expenses, aged care support or in-home services.

Improving Your Living Environment

Make home modifications for safety and convenience, such as installing ramps or modernising bathrooms.

Supporting Your Family or Legacy Goals

Assist loved ones financially or offer an early inheritance to children or grandchildren.

Avoiding Relocation

Stay in your current home and community, especially if downsizing isn't suitable for your lifestyle.

What Are Reverse Mortgages?

A reverse mortgage is the most widely used form of equity release loan in Australia. It allows homeowners – typically aged 60 or older – to borrow money using their home's equity as security without the need to make repayments while living in the property. Below are its key features:

• Loan Structure: You can choose to receive funds as a lump sum, regular income, line of credit, or a combination.
• Compounding Interest: Interest adds to the loan over time, increasing the amount you owe.
• Repayment Events: The loan is paid back when you sell your home, move into permanent care, or pass away.
• Equity Safeguards: If your loan was taken out after 18 September 2012, you are protected by a rule that prevents your debt from exceeding your home's market value.

Reverse mortgages are subject to lender policies, and your age typically determines how much you can borrow. At age 60, the Loan-to-Value Ratio (LVR) might be around 15–20%, increasing slightly with each additional year of age.

Are There Non-Loan Equity Release Options in Australia?

Aside from an equity release loan, there are other ways to unlock the value in your home. Here's an overview of the two common non-loan options:

Home Reversion Schemes

With home reversion, you sell a portion of your home's future sale value in exchange for a lump sum today. 

• Ownership Share: The provider owns a share that is paid out upon sale, but you keep the right to live in your home.
• Reduced Payment: The amount you receive today is less than the future value of the share you sell.
• No Interest: Since it's not a loan, there's no interest – only one-off fees such as transaction and valuation costs.
• Rebate Options: Some providers offer partial rebates if you sell or pass away sooner than expected.

Home Equity Access Scheme (HEAS)

The HEAS is a government-run program that lets eligible Australians receive regular payments by using their home as security.

• Eligibility Criteria: This is open to Age Pension recipients and certain self-funded retirees who meet residency and property ownership requirements.
• Loan Repayments: You can make voluntary repayments at any time, or repay the loan in full upon the sale of the home or death.
• Interest Rate: The HEAS charges a relatively low interest rate compared to private lending products.
• Flexibility: You can adjust or stop payments and opt to receive lump sum amounts depending on your circumstances.

Private Equity Release Agreements

These agreements involve selling part of your equity to a third party, usually through a managed fund, in exchange for a lump sum or instalments. 

• Equity Shift: Over time, your share of equity decreases while the investor's portion increases due to fees.
• Fee Structure: Instead of interest, you pay upfront application and ongoing service fees deducted from your remaining equity. 
• Sale Outcomes: When the home is sold, the investor receives their portion of the sale proceeds, and you or your estate keeps the rest.
• Occupancy Rights: Make sure your agreement allows you to live in the property even if your retained equity reduces to zero. 

Who Can Apply for an Equity Release Loan?

Equity release loans are generally designed for older Australians who own their home and are looking for financial flexibility later in life. Lenders have specific eligibility criteria that you'll need to meet to qualify:

Minimum Age

Most lenders start offering equity release options from age 55 or 60, depending on the product.

Property Ownership

You need to either own your home outright or have a small existing mortgage that can be refinanced.

Borrowing Range

The amount available to borrow is based on your age and the value of your home – older borrowers can typically access more. 

Financial Position

Having a history of making mortgage repayments on time and being in a strong financial position may help your application.

Credit History

A clean credit report, free from defaults or late payments, is generally required by lenders.

What Should You Consider Before Releasing Home Equity?

Equity release is a long-term financial decision that can have wide-ranging consequences. Below are several important considerations to keep in mind before securing an equity release loan or other equity release options:

Financial Implications

• Releasing equity may affect your eligibility for the Age Pension and other entitlements, depending on how the funds are received and used.
• It could leave you with less available equity in the future to pay for aged care, medical needs, or major living expenses.
• Accessing equity may reduce the value of your estate, leading to a smaller inheritance for your beneficiaries.

Family and Legal Considerations

• If you live with a partner, adult children, or other co-residents, they may lose the right to remain in the home after you move out or pass away.
• Equity release agreements often involve complex legal documents, so seeking professional legal advice prior to signing is advisable.
• Having open discussions with your family can help prevent misunderstandings and future disputes about your financial decisions.

Risks and Costs

• Reverse mortgages accumulate interest over time, which compounds and can significantly increase the total amount owed.
• Home reversion schemes and private equity agreements will reduce the share of your home that you ultimately retain.
• Depending on the product, you may be required to pay fees such as loan setup costs, property valuations, legal charges, and exit fees.

How Much Equity Can You Release From Your Home?

Here are some of the factors that may affect how much you can access:

• Age Impact: Older borrowers are generally eligible to access a larger percentage of equity.
• Product Type: Reverse mortgages, home reversion, and equity agreements vary in how much you can access and retain.
• Home Value: The current market value of your home is a key factor in determining how much equity is available.
• Loan-to-Value Ratio: Most lenders allow borrowing of up to 80% of your available equity, depending on their policies.
• Outstanding Debt: Any existing mortgage or secured debt will be deducted before calculating your available equity.

Exploring Home Equity Solutions with Ausfirst Lending

If you're 55 or older and want to stay in your home while accessing extra funds, an equity release loan could offer a flexible solution. Whether you need to renovate your home, support your retirement lifestyle, or plan for future care, this loan lets you potentially tap into your home's value on your own terms – without selling or downsizing.

Ausfirst Lending's mortgage brokers are here to help you assess whether equity release is right for your situation. We will take the time to understand your needs and guide you through the available options that align with your retirement plans.

Why Choose Ausfirst Lending Group

Dedicated Guidance and Comprehensive Service

At Ausfirst Lending Group, you are our top priority. We are dedicated to providing comprehensive assistance from start to finish, not just because we are legally obligated to act in your favour, but because we genuinely want to ensure your success. 

We focus on your objectives and requirements, and combine deep industry knowledge with a strong commitment to finding loan options that truly align with your financial needs. We simplify the entire loan application process by assessing your borrowing capacity, organising documentation, and negotiating terms on your behalf, all while securing the most favourable outcomes for you.

Extensive Lender Options

One of the key benefits of working with Ausfirst Lending is our access to a diverse range of lenders. Instead of presenting just one option, we assess a broad array of options according to your financial needs. This allows us to tailor solutions that match your specific goals and circumstances, ensuring you get the best possible outcome.